Economics Elasticity Of Supply Questions
Price elasticity of supply refers to the responsiveness of the quantity supplied of a good or service to changes in its price level. It measures the percentage change in quantity supplied divided by the percentage change in price.
When the price elasticity of supply is elastic, it means that the quantity supplied is highly responsive to changes in price. In this case, a small change in price will result in a relatively larger change in quantity supplied. This indicates that suppliers are flexible and can quickly adjust their production levels in response to price changes.
On the other hand, when the price elasticity of supply is inelastic, it means that the quantity supplied is not very responsive to changes in price. In this case, a change in price will result in a relatively smaller change in quantity supplied. This indicates that suppliers are less flexible and may take longer to adjust their production levels in response to price changes.
The concept of price elasticity of supply is important for understanding how changes in price levels affect the quantity supplied in the market. It helps businesses and policymakers make decisions regarding production levels, pricing strategies, and market equilibrium.